EA Stock: Up, Up, and Away
In my previous publication on Electronic Arts Inc. (NASDAQ:EA) stock, I dubbed it a “Trader’s Paradise” because of its ability to adhere to rules set out by technical analysis.
Technical analysis is my preferred method when analyzing a potential investment because I have yet to find anything that has produced similar results in such a timely manner.
This method is based on the notion that historical price and volume data can be used to discern trends and forecast future prices. As a proponent of this method, I can reassure many that, although this method may sound preposterous, it really works. I have been refining my skills in technical analysis for nearly two decades, and this body of knowledge has been instrumental in defining my trading views.
In my last publication on Electronic Arts, the price was setting up to make a move. This move was predicated on the stock’s ability to remain above a critical support level, and the notion that it was going to break above resistance.
The following Electronic Arts stock chart illustrates the important level of price support that has carried EA stock during its bull market advance.
Chart courtesy of StockCharts.com
It is difficult to pinpoint what exactly is my favorite technical indicator, but a simple trend line that serves to support the price, like the one illustrated above, is definitely high on my list.
This simple uptrend line that is highlighted on the stock chart above is created by connecting the troughs on the stock chart. This uptrend line has supported the price of EA stock since 2014. This trend line serves to define the bullish trend, and there is no mistaking an uptrend from a downtrend as it can be easily identified; an uptrend moves from the lower left to the upper right of the price chart. As long as the price of Electronic Arts stock trades above this trend line, the bull market advance is intact and higher prices can be expected to follow.
Aside from defining the major trend, the uptrend line also serves to define risk. Closing below this trend line would suggest that the bullish trend has come to an end, and that a larger correction in the price is set to ensue. I would use this trend line as a dynamic way of defining an exit strategy.
The moving average convergence/divergence (MACD) indicator in the lower panel of the above chart has just crossed in a bullish manner, and this action supports the notion that higher prices are likely to follow. MACD is a simple and effective trend-following momentum indicator that uses signal-line crosses to distinguish between bullish and bearish momentum. A bullish cross indicates that bullish momentum has once again overwhelmed any bearish momentum and, as a result, the path of least resistance is toward higher prices.
The following Electronic Arts stock chart illustrates the bullish developments that occurred since my last publication.
Chart courtesy of StockCharts.com
In my last publication about this company, I outlined that there were two distinct trend lines that were converging on the stock chart. The trend line that defines support is the same trend line that has been supporting the price since 2014. The trend line that marks resistance was acting to contain EA stock after the price peaked in October 2016.
The nature of these converging trend lines served to suggest that a price breakout was going to occur as time and space was running sparse. My inclination was leaning toward a bullish breakout because a reaffirming signal that was generated in June 2016 supported this notion.
This reaffirming signal that was generated in June 2016 was a golden cross. A golden cross is a bullish signal that is produced when the faster 50-day moving average (highlighted in blue) crosses above the slower 200-day moving average (highlighted in red). This signal is favored among traders because it serves to confirm the notion that a bull market is underway.
My bullish inclination was not ill-founded, because the price has gone on to break above resistance and backtest that level from above. This price action serves to indicate that the break above resistance was legitimate. The subsequent rally to a new all-time high is a result of energy being released because momentum was being stored as the two trend lines converged.
Now that upper resistance has been abolished, EA stock is free to trade higher.
Bottom Line on Electronic Arts Stock
Electronic Arts stock has broken above a resistance level while maintaining its stature above a key uptrend line. This feat, and a confluence of indicators, continues to suggest that higher stock prices are likely.